Mastering Personal Finance as a Physician

Educate yourself in the basics of finance. 

• Learn key finance terms and account types. Compound interest, credit score, 401k, HSA, high-yield savings and Roth IRA are a few foundational concepts and investment vehicles to understand. Look up unfamiliar terms in the U.S. Securities and Exchange Commission’s glossary of financial terms. 

• Get started by building and maintaining an adequate emergency savings plan and meeting an employer retirement contribution match, if one is offered. 

• Be cautious of moneymaking trends that promise quick returns. The basics rarely change in finance.

Set lifestyle goals.

• Goals allow you to strategically prioritize your spending, savings and investments, and help you determine if you need to work with a professional to help manage your finances.  

• Account for how soon you want to retire, where you’d like to live, and plans for family or travel. Someone who wants to retire in their 40s will have a much more aggressive savings and investment plan than someone who is prioritizing buying a large home. 

Learn when and how to hire a financial advisor.

• There are different types of advisors. Some are coaches, some are financial planners and some are wealth managers. Each advisor offers a different range of services. You might work with different professionals at different times.  

• In most cases, it’s in your best interest to find a fiduciary financial advisor. 

• Advisors can help you make short- and long-term plans, set up savings and investment accounts, and monitor your progress. 

• A financial advisor can be especially valuable when you’re reviewing a compensation package offer, considering a big purchase or transitioning from residency to practice. You might not need to hire someone long term in every case. 

• Ask about fees and make sure you understand how the investment professional is paid. Advisors usually take a percentage of your earnings, have an hourly rate or charge a flat fee. The wrong advisor can cost you many thousands of dollars over the years.  

• Hire someone who has worked with physicians. 

• Do a background check on your investment professional at Investor.gov to make sure they’re licensed and registered. 

Develop a budget.

• Budgeting is a process; it needs regular monitoring and adjustment to help you achieve the life you want.  

• Base your budget around your goals. 

• There are many low- and no-cost tools and resources that can help if you’re new to budgeting. Select one that works for you — it might be a spreadsheet, software or a phone app — and regularly track your spending.  

• Many experts suggest starting with a 50-30-20 budget, where 50% of your after-tax income goes to necessary expenses, 30% to things you want and 20% to savings. 

• Account for easy-to-forget categories like hobbies, subscriptions and unplanned expenses. 

• If you're considering moving, compare how far your new salary will go in the new location. AAFP Careerlink's cost-of-living comparison tool shows different areas' average cost of rent, utilities and gasoline. Just visit the site on a computer and enter a location under Search Jobs; the tool appears on the right side of your screen. 

Protect your assets.

• Have a will or trust. If you die without one of these, your state’s probate court decides how your assets and personal belongings will be divided, which can take a year or more. A financial advisor or an estate planning attorney can help protect your assets and ensure your wishes are followed. 

• Get disability insurance. Your ability to earn an income is a big asset. If you’re no longer able to work as a physician due to injury or illness, disability insurance will pay a portion of your income. Many employers provide disability insurance.  

• Buy a life insurance policy that would meet your loved ones' needs, like replacing lost income, paying off debt or paying for children’s education. Consider factors like your age, dependents’ ages, inflation and long-term goals to determine which type of life insurance, such as permanent or term, is right for you. An insurance professional can help you find products that fit into your long-term financial plan.  

• If you’re a business owner, ensure you purchase life insurance in a way that allows the money to go to the beneficiary tax-free.    

• Ensure you have malpractice insurance. Most employers provide the coverage you need, and ideally tail coverage if you leave your job. Speak with an insurance professional if you have questions about your policy.  

• AAFP members can schedule a no-cost, no-obligation consultation with a specialist from AAFP Insurance Program to review your financial situation. AAFP Insurance Program Inc. is a subsidiary of the AAFP Foundation.  

Set a long-term investment strategy.

• Participate in your employer’s 401k/403b plan and max out the match.  

• Understand your risk tolerance. Many investment company’s websites offer free tools to help you assess your risk tolerance. They may suggest asset allocations based on your tolerance level, but this advice may direct you toward the company’s own financial products or services.  

• High-yield savings accounts can maximize your savings with limited risk. 

• Ask your financial advisor about investing in a Roth IRA, an HSA/HRA and, if you are saving for a child’s higher education, a 529 plan.  

• Your investments should be optimally tax advantaged to help save you even more money. Talk to a professional to understand these options thoroughly. 

Prepare for retirement.

• Have a goal age in mind for downshifting to part-time work or retiring completely. 

• If you own your practice, develop an exit strategy about five years before you retire. 

• Keep your community and your access to AAFP member resources with a life membership in retirement. 

• Develop an income strategy that includes withdrawals from retirement accounts and other income sources, such as Social Security benefits, inheritance and savings. Be sure you know how the different types of income may be taxed. 

• Secure appropriate insurance coverage to safeguard yourself and your family during retirement.  

• Enroll in Medicare as soon as you turn 65 to avoid coverage gaps or penalties.